A Better Mousetrap

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Effects of Blind Spots
The Economic Downfall of the 2000’s
Taryn Bushrod
UMUC
Introduction
The United States economy suffered tremendous losses surrounding market crashes in the credit lending industry as well as the stock market. These losses transposed into a number of manufacturing industries but most notably the automobile industry. Ford, General Motors, and Chrysler known as “The Big Three” in the U.S. automobile industry each received Government aid to with stain the market crash. General Motors and Chrysler received a “Government Bailout” as they each filed for bankruptcy whereas Ford received a government loan in order to increase production of fuel-efficient fleet (www.forbes.com). This was a turning point in the financial industry that affected everything in the economy from cost of living, to interest rates, to financial spending as a whole. Everyone was concerned about the state of the economy and the rising unemployment rates. Consumers became more conscious of how their dollars were spent and ultimately their investing habits. The article “A Better Mousetrap: Economics, Psychology, Blind Spots and Reform” published in The Journal of Behavioral Finance explored some of the behavioral affects of the economic downfalls in the 2000’s. A Better Mousetrap

The media played a major role in the credit market crash and subsequently the stock market crash. Many media outlets blamed Wall Street and its “greedy, unscrupulous, reckless villains” working in the industry (Smythies, 2009, p.125). There were many reports that industry was aware of what was on the horizon prior to the downfall and did not react to avert it because of the potential loss of profits. The article spoke about the reaction of the financial industry to these reports and in turn placing blame on the financial system and not the financiers working in the industry. Ultimately, these issues resulted in a loss of confidence of the American people in the financial system and subsequently in those individuals working in the industry. There are many psychological factors related to finances and the article referenced behavioral affects such as blind spot and group think. The psychological impacts are seen in the financial system itself, the financiers, and relationships with financial institutions such as banks and investment firms. The article raised the question of who was really at fault, the financial system or the financial advisor? Also, “the psychological aspects of what determines trust between banks, and trust between clients and their financial advisors” (Smythies, 2009, p.127). There is also a political factor to consider when it comes to the financial industry. Public companies have a certain level of responsibility, which is achieved through various reports to governmental agencies such as the Internal Revenue Service and the Securities and Exchange Commission. The government has also established regulations such as the Sarbanes-Oxley Act of 2002, which “introduced major changes to the regulation of financial practice and corporate governance” (www.soxlaw.com). There will always be political challenges in the financial industry because the laws established by Congress require compliance. The government also has control over regulation and deregulation, which affects corporate business practices and financial proceedings. Blind Spots

The financial system in the U.S. economy is likely flawed as with most systems. There are people who conspire ways to deceive financial systems for beneficial gains as these systems has a direct impact upon financial conglomerates such as Goldman Sachs. However, the systems don’t operate themselves. There are industry experts and financiers driving the economy through their day-to-day activities in the financial industry. So is Wall Street really to blame or those who work on Wall Street. In the investing world financial advisors have control over their...
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